Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Question
Chapter ST3, Problem 8CQ
To determine
Stock market risks.
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The benefit of diversification when constructing a portfolio is that it can reduce what?
Should a person who is risk-averse hold a portfolio with no stock and only bonds? Explain.
How would you describe the relationship between a risky investment and the
return on that investment (think stocks or retirement accounts)?
a casual or limited relationship
there is no relationship between the level of risk and the return you get on
your investment
a direct or positively correlated relationship
an inverse or negatively correlated relationship
Chapter ST3 Solutions
Economics: Private and Public Choice
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Similar questions
- Give your opinion on the current situation of stock market right now. Would it be profitable to invest in stocks?arrow_forwardWhat is the value of a preferred stock that pays a perpetual dividend of $120 at the end of each year when the interest rate is 3 percent?arrow_forwardwhy do stock prices constantly change? Doesn’t this go against the law of supply and demand?arrow_forward
- As an investor, how do you diversify against risk?arrow_forwardYour bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay adividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment? Support your answer with calculations.arrow_forwardWhat happens to interest rates in the market if the stock brokerage commission declines? Explain the reason for your answer!arrow_forward
- Answer the attached questionarrow_forwardwhat does it mean to say that the optimal amount of investment in a risky asset is independent of initial wealth? explain in detailsarrow_forwardWhy is it important for people who own stocks and bonds to diversify their holdings? What type of financial institution makes diversification easier?arrow_forward
- I. When people buy stock, is there a guarantee that they will receive dividends or that they will be able to sell the stock at a price higher than the price they paid for it? J. If there is no guarantee, why are people willing to buy stock?arrow_forwardWhat is the expected return from an investment if there is a 20 percent chance of a 4 percent return, a 40 percent chance of a 8 percent return, and a 40 percent chance of a 12 percent returnarrow_forwardShould you buy or sell stocks?arrow_forward
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